Why You Should Pay For More Than You Watch
There was a column in the L.A. Times yesterday from David Lazarus entitled: “Let’s pay only for the TV we watch.” So, once again, back we go to the topic of “a la carte” cable service.
I get it. It feels like much of the content world is going to a pay-only-for-what-you-want model. Certainly, it feels right emotionally to only pay for the stuff you’re going to use. But this argument is almost always predicated on one premise: If I could pick and choose, my bill would go down.
Lazarus writes:
The average U.S. home now receives a record 118.6 TV channels, according to a recent report from Nielsen Co. But the dirty little secret of the cable industry is that the average subscriber watches only about 17 channels regularly.
That’s more than 100 channels that most cable subscribers are paying for but seldom if ever watching.
Because of the number of cable systems nationwide, it’s hard to get a fix on the average monthly bill. But many estimates place this figure at $60 to $70.
This means, if all channels cost the same, the typical cable subscriber is spending about $9 a month for the 17 channels he wants to watch and about $55 for the 101 channels he never sees.
There are big problems with the figures here, so let’s break it down.
If you’re getting 118.6 channels, that means you’re getting digital cable service, because analog can’t deliver that many. SNL Kagan estimates that the current average monthly price for digital service is $59.23 (expanded basic is $44.28), which not only provides a wide range of programming but also opens up the door to high-definition and Video on Demand.
The first important point that Lazarus overlooks is that the average cable subscriber has elected to switch from a cheaper level of service with fewer channels, in order to take a more expensive level of service with more options. Perhaps people like the greater choice that comes with digital?
For example, Cablevision recently reported that more than 90% of its video customers subscribe to digital service, which means that 9 out of 10 of its customers want more channels, not fewer. If you look at the largest cable operator, Comcast, you find that 69% of its video customers elect to subscribe to digital service. Industry-wide, approximately 62% of cable’s video customers have made the decision to receive more channels via digital service.
Lazarus continues:
But all channels don’t cost the same amount. By most accounts, the sports channel ESPN is one of the most expensive carried by cable systems, costing by some estimates more than $3 a month per subscriber. Many other channels are said to cost as little as 25 cents monthly.
I never watch ESPN. When I watch TV, it’s usually CNN, CNBC or a movie channel. On an a la carte basis, I could probably get the handful of channels I like for pocket change.
That, of course, is not what the cable industry wants.
Lazarus leaves out all of the relevant content here. Those figures he cites are carriage fees that cable operators pay programmers in order to carry those services and offer them to their customers (The real rates are found in private contracts; actual figures will vary by company and circumstances). It’s not what those networks “cost” and it’s not a reflection of what you would be charged in an a la carte world.
He also writes:
According to the FCC, average cable rates nationwide more than doubled over the last 10 years.
In fact, the FCC has not released any reports containing this information. There have been statements in the media to this effect, but the Commission has not released any reports to back up this assertion. It is irrelevant to compare today’s rates to the rates from more than ten years ago, since the nature and value of that service has changed over that same time-frame, but it is worth noting that over the last several years, the increases in cable rates have actually lagged behind inflation rates.
Read this post for the financial details, but the short version is that if each network lost the carriage they have now and then had to market and sell the channel to individual consumers, revenue goes down, operating costs go up and programming quality probably also goes down. And the price you think you’ll pay for individual channels on an a la carte basis? You’re probably grossly underestimating it. The reason why you should pay for more than you watch is that it beats paying more to have fewer options.
Lazarus writes that cable needs to be brought “in line with the wholesale shift in how consumers now approach entertainment.” But different distribution outlets have different pricing models. If you saw Iron Man in the theaters, you probably paid ten bucks. The DVD is probably $20. Buy it on iTunes for $15 or watch it on VOD for $5. As I’ve written previously, different businesses operate on different models and it’s a mistake to assume they should all be the same.
Lazarus makes a comment early on about knowing “as a newspaperman” a little something about “outdated business model[s].” The print edition of his newspaper, the Los Angeles Times, is not sold on an a la carte basis, with the option of buying just the sports section or the business section. They did experiment a few years ago with putting their online entertainment section behind a wall and then charging a subscription fee for access. They later ended the experiment. The New York Times did something similar with its TimesSelect service. In these instances, the free market determined their actions, not regulation. Business models change over time and the models of the cable industry will undoubtedly do so as well.
If you look at the comments of this column, you’ll find some other reasons given why mandatory a la carte would probably be problematic. You could also check out some of Mike Masnick’s posts at Techdirt, such as here, here or here.
Tags: a la carte, cable, prices, programming
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November 13th, 2008 at 1:47 pm
It took a long painful while for the music industry to embrace iTunes, etc., over they model they had built over decades (pay radio to play songs to make hits to sell albums) and the transition was made more difficult by their intransigence. Cable has a huge asset in the millions of miles of coax, etc., that they have laid nationwide, but the cable companies are being taken advantage of by the content producers who a) bundle worthless networks with must-have networks, b) squeeze local broadcast affiliates who then have to squeeze cable for retrans dollars, and c) give away or already offer a la carte online (via iTunes, etc) much of the content that they offer through cable. Cable doesn’t want to go a la carte because it doesn’t have a choice, it can’t, the content providers have the industry by the beans. Think about the bandwidth savings that a la carte delivered by an IPTV or SDV type system would provide, and the new uses for that now empty pipe…….I understand why cable has to fight a la carte, but I don’t really get why the industry wants to.
November 15th, 2008 at 4:09 pm
Dear Paul,
I too read the LA Times column on a la carte and every one of the comments. It’s clear to me that readers of the Times, aka cable customers, overwhelmingly favor a la carte. Your implication that the reader comments to Lazarus’ column oppose a la carte is disingenuous.
I’m also not accepting for an instant your analogy about buying the various sections of the LA Times on an a la carte basis. The Los Angeles Times represents one news source: one entity with one profit center. Think of it as CNN. Nobody is asking cable operators to let us buy only Anderson Cooper to the detriment of the rest of CNN. Rather, we’re saying that the cable operator is like the owner of the newsstand. The local newsstand does not force us to buy the LA Times, The New York Times, the Wall St. Journal, and Washington Post, as well as Sports Illustrated, People, Vogue, Car and Driver, and all the rest. But the cable operator does. The cable company gives us no choice but to buy all their titles, shoving products down our throats that we don’t want and, in the case of foreign language channels, products we don’t even understand, or, in the case of religious programming, ideologies we don’t support.
Furthermore, take a good, hard look at the crap on cable TV. Don’t delude yourself into thinking cable exists for the public good. Cable TV provides entertainment first and foremost. And when it comes to entertainment, cable TV leads the way in stupidity.
Exhibit A:
One of my students this semester has created a blog called “MTV Corrupts” in which she included this clip from one of MTV’s signature shows. After viewing it, please…please…tell me why the American consumer should be mandated to pay for this s-h-i-t (literally) of Sumner Redstone’s if all the consumer wants is news and sports? Check it out here: http://mtvcorrupts.blogspot.com/2008/11/mtv-promotes-poo-diving_12.html
Cable operators and programmers, beholden to one another and protected by quasi-monopolistic practices, have little incentive to be customer-centric, and so they are not. Their opposition to a la carte is just another way of saying “Customers be damned!”
Cory O’Connor
Assistant Professor of Advertising and Public Relations
Chapman University
November 17th, 2008 at 9:41 am
Professor O’Connor:
That’s just it. Nobody’s “mandating” that you buy anything. If you don’t think there’s anything good on cable, or not enough to make it worth the price, then nobody’s “mandating” that you buy it.
I remember the bad old days of cable when there were 40-60 analog channels and most of the time there was literally nothing good on. I get 150 channels now for what I consider a reasonable price, the picture quality is good, and there is ALWAYS something good on. And I can watch it anytime I like with DVR and on demand.
And your critique of the newspaper analogy doesn’t hold water. Forget about sections. Buy a newspaper or magazine at a newsstand at the cover price, then compare that to what you’d pay if you subscribed to it. You’ll ALWAYS get a better deal with a subscription than with an a la carte purchase. Same with cable tv or anything else.
By the way, 85% of the American public disagrees with you that subscription TV is not worth it. So instead of bashing cable, according to your standards you should be bashing the public for being stupid enough to pay for TV.
November 19th, 2008 at 4:25 pm
I think you missed a key point, Derek. I specifically pointed out that the economics of music, whether a single song or an entire album, are totally different from the economics of television. I could record a song at home for nothing - using only my Mac and my God-given, nearly non-existent, music skills - and then throw it up online and distribute it for nothing. It becomes trickier to do that with video, since making a show look good technically tends to add to production costs. In addition, professional talent does insist on being paid (Jon Stewart doesn’t work for free.).
As for the reader comments from the L.A. Times website, it was not my intention to suggest that the comments were in favor of the cable industry, only that there were some comments that suggested this approach may not work.
As for the issue of whether cable operators are the newsstand or the publisher, we have long argued legally that a cable operator is a publisher, exercising editorial control of what programming services are offered and how they are packaged. You are, of course, free to disagree with this characterization.
Professor O’Connor seems singularly focused on the issue of programming quality, suggesting that crap ought to perish and subscribers should not be forced to support such content. I’ve yet to see much (well, anything) expressed in support of any cable programming. In other words, if you don’t like any of it, then why subscribe to cable at all? On the other hand, if there are programs and networks that you do like, then perhaps you may want to acknowledge that its existence is due to other subscribers paying for it, despite not watching.
Just a thought.